A deep dive into energy transition opportunities for Latin America

The energy transition presents myriad opportunities for Latin America, a region with abundant renewable energy resources and minerals.

Domestic drives to cut carbon emissions and boost energy efficiency should create business seams to mine. The region is also well positioned to become a provider of green hydrogen and its derivatives to Europe and Asia – which would generate export revenue, bolstering cash flows from other associated commodities such as copper and lithium.  

Then there are geopolitical shifts stemming from the Russian invasion of Ukraine, which is resulting in countries looking elsewhere for secure supplies of oil and gas – including in Latin America.    

To discuss the energy transition and more, BNamericas spoke with Benjamín Torres-Barrón, a partner at global law firm Baker McKenzie.

Torres-Barrón was a panelist at energy summit AIEN 2022, held recently in the UK, where he gave an international perspective on the energy industry and its current challenges. 

To explore the energy transition and opportunities for Latin America, BNamericas conducted an email interview with Torres-Barrón, who leads the legal firm’s energy, mining & infrastructure practice group in Mexico.

With additional reporting from Elinor Trebilcock.

BNamericas: At the AIEN 2022 International Energy Summit, held recently in London, was there discussion about the role that mining – lithium, copper or other critical minerals – plays in the electromobility, decarbonization and global energy transition goals? If so, what were the main conclusions, challenges and opportunities seen?

Torres-Barrón: Most of the challenges for the mining sector, as they play a major role meeting the global energy transition goals, come down to supply and demand. Demand is expected to grow considerably faster than supply. Especially, as we start to see an assertive global shift toward electrification and decarbonization.

There will be a rapidly growing need to supply a substantial quantity of minerals to reach these ambitious goals. To meet the rising demand, an increase in capital investment will be essential for the industry to be able to handle this level of production. But the necessity to meet energy transition goals may be moving faster than the mining industry can keep up with. There is a need for improved regulations, policies, incentives, and mechanisms for the mining sector that can promote investment and facilitate the uptick in supply. These mechanisms include financing models to support this evolution and needed investment. In order to keep up pace, the production of these essential minerals and metals would need to be scaled up to accommodate the sheer mass of supply needed, all at a very fast pace. As it is, much of the exploration and extraction of these strategic minerals are already highly time intensive. If the mining sector wants to avoid shortages and meet the evolving demands, the supply must respond quickly enough, and the prices must accommodate appropriately to the market. The economics of supply, demand, and price must all fall into place. Which brings us back to the need to increase capital and reduce costs, and improve efficiencies. In addition, while it is hard to predict if there is a potential risk of future shortages in these natural resources, this can also be a potential challenge long term. Lastly, the mining industry, while it may be able to contribute positively to the energy transition, awareness around ESG [environmental, social and governance] considerations is growing and the mining sector will have to acclimate. The sector will need to manage these risks and ensure the exploration and extraction of these minerals is done in a way that takes into consideration ESG principles. In particular, the environmental and social implications will need to be mitigated to successfully be a key player in the transition. The opportunity is clearly there for the mining industry; it is just a matter of being aware of the challenges, and being ready and able to create solutions to adapt to the ever changing landscape. 

BNamericas: Do you think that the proposed goal of achieving zero carbon economies by 2050 can be met?

Torres-Barrón: Short answer, yes; however, many factors must come into play to be able to achieve this. It is true that many economies are setting ambitious targets; however, it is not as simple as that. While making a commitment is an important first step, it is only just the beginning. We must completely transform the way we do things, this includes how we consume, produce, invest, and develop. First, there must be an active effort to reduce greenhouse emissions, by developing a strategic plan to reduce carbon in many of facets of the economy. This can be done in a variety of ways, but all parts of the economy must play a role. It is important that we look at the sectors that are contributing greatly to the emission of greenhouse gases [GHG], and this requires a coordinated effort to reduce GHG and invest in combatting climate change. For example, the energy sector is one of the largest producer of fossil fuels; therefore, replacing this energy with cleaner/renewable sources would dramatically reduce carbon emissions. The transportation sector also needs to look at decarbonization, this includes investing in electric mobility and other technologies to reduce burning fossil fuels to power the transportation industry. 

Another area where we can look at decarbonization is in the infrastructure sector. Economies must look at investing in greener infrastructure projects, such as, green buildings, and developing smart cities. Individual companies must also play a role and execute internal changes to reach net zero in their business. The commercial and industrial (manufacturing in particular) sector companies should implement standards, policies, and procedures to become more energy efficient, and take on low carbon initiatives. That is, actively change the way they do business to align with the objectives to combat climate change, reduce GHGs, and meet net zero targets. 

This means companies must collaborate with those in their supply chain, to ensure others in the value chain are following the same net zero path. Achieving zero carbons means reducing emissions in all sectors of the economy. In spite of this, if we truly want to meet these ambitious goals of achieving a zero-carbon economy by 2050, governments need to be the driving force. Governments need to take action and develop policies. They must implement climate regulations, standards and certifications around sustainability, norms around reporting, establish mandates for reducing greenhouse gases, provide incentives, such as tax credits, sustainable finance, green bonds and subsidies, and possibly even applying green taxes (at times the most effective mechanisms are those that penalize - the stick often works better than the carrot). This would not only provide transparency, accountability, but also motivation for industries, businesses, and citizens by paving the way toward transformation, which is vital to reaching net zero. 

BNamericas: What clean energy initiatives around the world could benefit the mining industry in Latin America, in particular Chile and Argentina?

Torres-Barrón: The need for critical minerals and metals will continue to grow significantly to be able to meet our growing energy demands, and also contribute to the energy transition. Clean energy technologies require an increase in many of these minerals and metals which allow for countries with plentiful resources to be a strategic player for this demand. Lithium, copper and nickel are just a few examples of minerals that are of critical importance for many of these technologies in the renewable energy sector (i.e., solar, batteries). With the aggressive goal of reaching net zero by 2050, the need for these minerals and metals may very well double. Latin America is a region rich in these natural resources, and many have a plethora of these resources needed for the energy transition. For this reason, the region may have the opportunity to be a global leader as a supplier. All of this means that the region can play a central part to the solution toward reducing carbon emissions. 

This is a grand opportunity for the mining sector in Latin America but also a big responsibility, as the sector will have to continue to ensure they are also reducing their carbon footprint and focusing on environmental protection. This is also an important investment opportunity for the mining sector in LatAm and the energy transition may bring these opportunities specifically to resource-rich countries, like Chile and Argentina. However, these countries will need to ensure they are also keeping up with evolving technologies and ensure they can keep up with the intensifying demand and expectations. Chile and Argentina have already positioned themselves well for these types of opportunities. Chile continues to be one of the world’s largest producer and exporter of copper: last year it produced 2 1/2 times more than Peru, the second largest in the world. 

Argentina does not fall far behind as a leader in global copper reserves. Chile is also rich in lithium, together with Argentina, both bordering the world's largest resource of brine-based lithium (both located in the lithium triangle). Chile continues to push to grow their copper and lithium producing operations in the country. For example, with the increase in electric vehicles, lithium is used in the batteries and is one of the most important components for this, as well as in energy storage, Thereby making it an essential mineral for the energy transition, production must increase and Argentina and Chile are already actively involved in projects (production), and have made commitments and are establishing frameworks to help make this happen (meet increasing demand), and in a sustainable and environmentally friendly way. 

BNamericas: In Latin America, beyond mining, what are some of the business opportunities that the energy transition may present for the private sector? For example, energy efficiency, electrification? What countries in the region seem best positioned to ride this wave?

Torres-Barrón: The energy transition opens the door for many opportunities for the private sector. Investing in renewable energy, energy efficiency, and other technologies and resources which help reduce carbon, all can lead to a return on investment. Many of these areas of opportunities are the same areas needed to achieve net zero by 2050. The sector of renewable energy is one of the fastest growing industries, and where we may see the most opportunities. These business opportunities include wind, solar, hydrogen, but also the technologies that complement the renewable sector such as storage, micro grids, amongst others. There are also opportunities in the sustainable infrastructure sector, developing and building green buildings, smart cities (optimizing energy consumption & efficiency in urban cities), construction of various green projects, i.e., water capture, waste management. Additionally, in the transportation sector, there are the opportunities of electrification, e-mobility, low carbon transport, electrical charging. 

However, we must not forget the finance sector. Banking and finance will be a high-growth area, as more financial institutions are looking toward green financing, sustainable loans, and other financial instruments geared toward supporting the energy transition. The financial private sector will see opportunities in green asset and investment management, environmental consultants, sustainable reporting, including green credit rating institutions. Lending institutions would not get involved in this if there was not an economic upside to this business. 

Lastly, the area of research and development is key to creating more opportunities. The energy transition will need to discover innovative new energy solutions, and energy-efficient technologies to help support our path toward decentralization of energy and decarbonization. We must innovate in clean technologies and continue to evolve to adapt to the energy transition. I believe all the countries in the region have the opportunity to ride this wave, and the region as a whole with so many resources at our disposal, are opportune places for growing in these opportunities. By and large, there are indeed some countries that are better positioned than others. Many of the reasons is the government support which allows for business opportunities to grow for the private sector. For example, recently in Colombia, we have seen the Colombian government pushing the country toward becoming a leader in not just renewable energy, but also pushing for environmental protections of the country's resources (deforestation), and commitments to prioritize fighting climate change. There has been an increase in wind projects and it has also expanded in hydrogen, and launched its first hydrogen pilot project. The country has legislation to promote renewable energy investment and offers tax offsets for companies. Certain LatAm governments are also active in promoting investment and development of the private sector in this space. 

Chile is looking to position themselves as the leader in the hydrogen sector and also e-mobility. In 2019, they made commitments to be carbon neutral by 2050. And in 2020 they published the national green hydrogen strategy, where they committed to accelerating deployment in the next five years and then eventually be able to export. Not to mention, Chile is still one of the global leaders in copper and lithium, and both minerals are crucial for energy transition business opportunities. For example, copper for electrification and EV [electric vehicles], and lithium as well, including battery storage, grids, amongst others. 

Peru also has an abundance in minerals critical to the energy transition, and the country has also made ambitious goals for 2050. It has vast renewable potential and has already had energy auctions. Plans are underway to grow green hydrogen by implementing regulation, and there is already a proposal to support more renewable energy projects. 

Then we have countries such as Costa Rica, Paraguay and Uruguay which are producing the majority of their electricity from clean sources. All that is to say that I think there are various countries that have the ability to position themselves well for increased private investment in the energy transition, in areas outside of mining. It is just a matter of keeping an eye on the countries that continue to implement regulation and policies to support the private sector and incentivize future private investment. 

BNamericas: Finally, it seems that the stars are aligning for Latin America. Demand should grow for energy metals along with demand for the region’s hydrocarbons, given Europe’s decision to wean itself off Russian oil and gas. Do think that is a fair assessment and, particularly in the oil and gas space, do you think the scenario will result in an uptick in E&P investment, for example?

Torres-Barrón: Europe’s decision to become less dependent on Russian oil will create a demand which will need to be met. This gap from Russian oil and gas will require more production elsewhere, and Latin America could be the region that benefits most from this. Latin America offers considerable oil and gas resource opportunities, as well as the other natural resources mentioned for the energy transition. While it is unfortunate that it took an event such as this one, it could result in an opportunity for Latin American oil producers to position themselves as the next supplier. However, it is more than just filling a temporary void, the escalating demand will require a reliable source to take the place, and the region has the prospect of being that source to meet that need. 

With the recent conflict, many countries are looking toward more sustainable E&P too, and a less vulnerable energy market – so the Latin American region will have to take that into account. With that being said, it is very possible that we will see an uptick in E&P investment as a result of this since many countries in Europe will need to find alternative sources, and we can be the one.